Post-Mortem of a Failed Investment Idea

I have been recommending investors to short companies with a history of loss-making for a long-time now. My short calls have been fairly successful as the likes of Yelp, SolarCity, Plug Power, Westport, etc. have lost considerable value since I recommended shorting them. However, in this article, I will be discussing about my non-profitable short call on Angie’s List.

I first recommended short Angie’s List about a year ago. Angie’s List popped almost 60% after earnings, as a result, I thought it would be a nice time to short the stock.

The stock did head lower in the coming months. However, Angie’s List again reported better-than-expected earnings, as a result of which, the stock soared again. In addition to the glooming earnings report, there was also a buyout offer from InterActiveCorp for Angie’s List.

InterActiveCorp was willing to pay a hefty premium for Angie’s List and the stock soared on the rumor. Now that Angie’s List has rejected InterActiveCorp’s bid, it is believed that the latter will come up with an improved bid.

While I still don’t like Angie’s List’s business model, my analysis has been wrong primarily due to the buyout offer of InterActiveCorp, which has pushed the stock a lot higher than it deserves. With Angie’s List expected to report its earnings today, I think investors should not short the stock as it is very volatile on earnings.

In fact, Angie’s List is the most volatile stock on earnings and I would advise investors against trading it around earnings due to the volatility. For the quarter, analysts are expecting Angie’s List’s earnings per share to come in at $0.26. On the revenue front, the Wall Street consensus is expecting to see a year over year growth of 6.7% to 87 million.

The bar for Angie’s List is not set very low and it may be possible that company will beat again. Moreover, insiders have been buying Angie’s List’s shares at a rapid speed over the last few months and it may suggest that the stock has further upside potential.

Conclusion

Given that Angie’s List’s earnings are due tomorrow, I think investors should not trade the stock and should close their short positions. Since Angie’s List is the most volatile stock on earnings, neither going long or going short makes sense for long-term investors. High insider buying suggests that Angie’s List may do better going forward and may even beat on earnings estimate yet again.